Uncertainty in Economic Analysis and the Economic Analysis of Uncertainty

Abstract

W hen i think about knowledge, I find it virtually impossible to avoid thinking about uncertainty. Uncertainty adds a new dimension to discussions of knowledge that are especially important in economic analyses when we seek a better understanding ofmarkets and the resulting outcomes for society and quantitative answers to important policy questions. It has been important in my research and also more generally in economic scholarship to take inventory, not only of what we know, but also of the gaps to this knowledge. Thus, part of economic research assesses what we know about what we do not know and how we confront what we do not know. Uncertainty matters not only for how economic researchers interpret and use evidence, but also for how the consumers and enterprises that we seek to model confront the future. Modeling systems as they play out over time is pervasive in many scientific disciplines, including economics. To use this approach to address real-world problems requires thatwe impose a specific structure on the models, guided by economic analysis and empirical evi-